Download - Union Budget 2012 - 13 Review
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Detailed Sectoral Review
Fiscal Consolidation???
Key Budget Incentives
Topics
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Detailed Sectoral Review
Fiscal Consolidation???
Key Budget Incentives
Topics
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Fiscal Consolidation???
• The Fiscal deficit of the Government for FY12 came in at 5.9% as against the budgeted
target of 4.6%. This was primarily caused by a fall in tax revenue collections and an
increase in subsidy bill combined with the shortfall in the divestment targets
• Given the fiscal slippage in FY12, the path of fiscal consolidation has been adversely
affected. However, no substantial reforms to boost the economic growth have been
announced in the budget. The Budget 2012-13 has failed to make the much required
attempt to foster growth by reviving fiscal consolidation.
• The Government has budgeted a fiscal deficit target of 5.1% in FY13. It will achieve this
target by raising its sources of revenue with an increase in excise duty and service tax
across the board. However, its targeted expenditure still remains high. Thus any slippage
in its revenue collection or increase in subsidies would make it difficult to achieve the
targeted fiscal deficit of 5.1% in FY13
• Some of its move to raise the excise duty and service tax combined with the recent
increment in railway freight charges are broadly inflationary. This in turn would
pressurize the Central Bank not to reduce the interest rates which in turn would make a
toll on the economic growth.
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What the budget failed to do?
• No timeline announced for the implementation of tax reforms, the Goods and Services
Tax (GST) and the Direct Tax Code (DTC)
• No hike in the foreign direct investment (FDI) limit in some of the sectors like aviation,
insurance and retail
• Failure to contain the market borrowings at the current level.
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Detailed Sectoral Review
Fiscal Consolidation???
Key Budget Incentives
Topics
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Key Budget Incentives
• Benefit to the individual tax payer
• Exemption limit for the general category of individual taxpayers enhanced from
Rs.1,80,000 to Rs.2,00,000 giving tax relief of Rs.2,000
• Deduction of up to Rs. 10000from interest from Savings Bank Account
• The 20% tax slab raised from Rs. 8,00,000 to Rs. 10,00,000 resulting in a tax
savings of Rs. 20,000 to the higher income group.
• Deduction of upto Rs.5,000 for preventive health check up
• Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax
deduction to new retail investors, who invest up to Rs. 50,000 directly in equities
and whose annual income is below Rs. 10 lakh.
• Central Excise and Service Tax being harmonized
• Standard rate of excise duty and service tax raised from 10% to 12%
• Service tax levy on all goods except those on the negative list comprising 17 heads
(by and large all service provided by the Government or local authorities)
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Key Budget Incentives
• Capital Market Incentives
• Reduction in Securities Transaction Tax (STT) by 20% from 0.125% to 0.1% on
cash delivery transactions
• Introduction of Rajiv Gandhi Equity Savings Scheme for a 50% income tax
deduction to new retail investors to generate additional flow of funds to the equity
markets
• Steps to attract foreign inflows by allowing qualified financial institutions (QFIs) to
access the Indian bond market
• Move to encourage corporates in raising finances abroad
• Rate of withholding tax on interest payments on ECBs reduced from 20% to 5% for
3 years for certain sectors viz Infrastructure, Real Estate, Power sectors
• Allowed ECB to part finance project costs
• Subsidies
• Endeavour to keep subsides under 2% of GDP in FY13. Further bringing it down to
1.75% in FY15
• ‘Food security’ to be fully covered by the Government.
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Detailed Sectoral Review
Fiscal Consolidation???
Key Budget Incentives
Topics
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Automobile sector Negative
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Basic Excise duty hiked to 12 percent from 10
percent
The rise in the excise duty would result in price hikes
across all the segments in the passenger car
industry, which consecutively would dent the demand
by some extent
Marginally negative for two wheelers, four
wheelers and Auto ancillary companies as
the increase was on expected lines
Excise duty on large cars increased from 22
percent to 24 percent
Duty on cars attracting mixed rate of (22% +
Rs 15,000) increased to an ad valorem rate of
27%
Excise duty on specified parts of hybrid
vehicles reduced from 10% to 6%
This would promote the manufacture, sale and usage
of such vehicles in India
Positive for the manufacturers of hybrid
vehicles like Mahindra & Mahindra
Basic custom duty on imported large cars/
MUVs/SUVs whose value exceeds USD 40,000
per vehicle increased to 75% from 60%
The rise in custom duty on imported completely built
units of large cars and SUVs will lead to a
considerable rise in prices of luxury cars and UVs
Negative for MNC car players as well as
domestic players like M&M and Tata Motors
Rs 10,000 is to be charged on building of
commercial vehicle chassis in addition to the
applicable ad valorem duty of 3%
This would increase the cost of production thereby
affecting margins
Negative for Tata Motors, Ashok Leyland
and Auto Ancillary companies
Increase in income tax exemption limit from
Rs. 180,000 to Rs. 200,000
Demand for two wheeler & lower end four wheeler to
be impacted positively with an increase in disposable
income
Positive for Hero Motor Corp, Bajaj Auto,
TVS Motors, Maruti Suzuki, etc
Hike in customs duty on bicycles from 10% to
30% and on bicycle parts from 10% to 20%
This would increase the competitiveness of domestic
bicycle manufacturers
Positive for Tube Investments
200% weighted deduction on in-house R&D
extended for a further period of five years
This will incentivize investment in R&D and
encourage new drug development
Positive for all auto companies.
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Automobile sector Negative
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Interest subvention schemes on short-term
crop loans continued at 7% for another one
year. Further, additional subvention of 3%
will be available for prompt payment
Continuation of interest subvention scheme would
lead to higher farm income with small farmers and
thereby push the demand for mid-size and small
tractors
Positive for auto companies having a rural
presence, such as M&M and Hero Honda
Allocation of Rs. 25,360 crore for NHDP
proposal
Aggressive investments towards infrastructure
development would drive the demand for M&HC
Vehicles
Positive for MHCV players like Tata Motors,
ALL, Eicher Motors
Tax on repatriation of dividends from foreign
subsidiaries allowed at a lower tax rate of
15% as against 30% for one more year
Players having their profit making foreign subdiaries,
which distribute profits to their holding companies in
India will be benefited from this provision
Positive for companies like Apollo Tyres,
Tata Motors, Mothersun Sumi
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Banking & Financial Services sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Recapitalization of PSU Banks, RRBs and
other financial institutions to the tune of Rs
15,888 crore
Capital infusion would help banks in regulatory
compliance and fund business growth
Positive for PSU banks like SBI, IOB, UBI,
BOI etc
Interest subvention schemes on short-term
crop loans continued at 7% for another one
year. Further, additional subvention of 3%
will be available for prompt payment
This is likely improve the payment discipline in the
agri segment, which has seen a sharp rise in the
NPAs. It will also increase the demand for farm loans
Neutral to positive for PSU banks
Saving Bank interest deductible up to
Rs10,000
This is likely to improve the savings bank deposits for
the banks
Positive for the overall banking sector
Government borrowings marked at Rs 4.79
lakh crore (net)
Since market borrowings will be higher than the
FY2012 borrowings it will add pressure to bond yields
Negative for overall banking sector
Reduction in withholding tax on interest
payment on ECBs from 20% to 5%
This will raise demand for low cost funds from some
stressed infrastructure sectors
Positive for the infrastructure finance
companies like IDFC, REC and PFC.
Rise in overall limit of issuance of tax free
bonds from Rs. 30000 crore last year to Rs.
60000 crore
Financial Institutions to benefit from cost effective
funding avenues
Positive for financial institutions such as
NHAI, IRFC, IIFCL, HUDCO, NHB and
SIDBI
Introduction of Rajiv Gandhi Equity Savings
Scheme for a 50% income tax deduction
This will increase the retail participation in equity
market and improve the depth of the domestic
capital market
Positive for the financial services sector
Reduction in STT from 0.125 percent to 0.1
percent on cash delivery transactions
This will have a positive impact on the investors and
increase volumes in the equity market
Positive for all brokerage companies
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Capital Goods sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Increased spending on major infrastructure
projects
Higher allocation will result in all-round growth for the
sector as it will encourage more capital investment
Positive for the entire sector
Increased allocation to Defence at Rs.
193,407 crore
It will revive demand for the sector Positive for BEL, M&M, Tata Motors,
Pipavav Shipyard, BEML, L&T etc
Capital investment in sectors such as
fertilizers, telecom towers and oil and gas
has been made eligible for viability gap
funding
Would help in attracting private investment in PPP
projects. Steps to ease funding constraints in new
project investments would help revive the asset
creation cycle through order inflows, thus benefiting
the sector
Power sector to issue tax-free bonds worth
Rs. 10,000cr for financing projects; ECBs to
part finance rupee debt of power projects;
Customs duty on imported coal to be waived
off
These reforms will boost investment in the power and
infrastructure sectors, resulting in a surge in orders
for the capital goods segment
Positive for the entire sector
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Cement sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Excise duty on cement cleared from mini
cement plants in packaged form will be 6%
plus Rs. 120/tonne; while duty on cement
cleared from other than mini cement plant
will be 12% along plus Rs. 120/tonne. The
duty will be charged on the retail selling price
with an abatement of 30%
Largely neutral as the duty hike was already
anticipated
Neutral on cement manufacturers
Customs duty on coal has been exempted Marginal reduction in the input cost Positive for the cement players like India
Cements, Madras Cement and UltraTech
Cements
Various initiatives like interest subvention of
1% and allowing ECB for low cost affordable
housing projects
The continued focus of the government on affordable
housing will lead to volume growth for cement
companies
Positive for the industry as a whole
Allocation towards PMGSY has been
increased by 20% to Rs. 24,000 crore
Increased allocation towards infrastructure projects is
positive for the cement players
Positive for the industry as a whole
Allocation for Road Transport and Highways
for road development increased by 14% to
Rs. 25,360 crore
Increased allocation towards infrastructure projects is
positive for the cement players
Positive for the industry as a whole
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FMCG sector Neutral
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Increase in standard excise duty from 10% to
12%
Minimal impact as most FMCG companies have low
single-digit excise payouts as their facilities are
located in excise-free zones
Negative for HUL and Asian Paints as a
higher proportion of their sales come from
excisable facilities
Increase in allocation to NRLM by over 34 per
cent to Rs. 3,915 crore and to Employment
Generation programme by 23 per cent to Rs.
1,276 crore
This will lead to an increased demand for FMCG
products from the rural population
Positive for FMCG companies whose 30-
50% of total revenues comes from rural
India
Tax on repatriation of dividends from foreign
subsidiaries allowed at a lower tax rate of
15% as against 30% for one more year
Players having their profit making foreign subdiaries,
which distribute profits to their holding companies in
India will be benefited from this provision
Positive for FMCG companies, which
receive dividend from their foreign
subsidiaries
Increase in Tax Slabs
Higher disposable income in the hands of consumers
will be positive to FMCG and consumer durable
industry
Positive for the entire sector
Customs duty on titanium dioxide reduced to
7.5% from 10%
It will improve the operating margins of the paint
industry as the raw material is imported
Positive for Asian Paints, Berger Paints,
Kansai Nerolac, Akzo Nobel etc
Increase of excise duty by 10% on cigarettes
This will result in an increase in duty. However,
players with strong pricing power can pass on the
duty hike through further price hikes in its cigarette
portfolio
Neutral for the players like ITC, VST
Industries, Godfrey Phillips
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Construction & Infrastructure sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Allocation to tax free bond for financing
infrastructure projects doubled from Rs.
30,000 crore to Rs. 60,000 crore
This will help in meeting the long-term needs of the
sector and will boost infrastructure development in
railways, ports, housing and highways development
Positive for the entire infrastructure sector.
Infrastructure spending to go up to Rs 50
lakh crore during 12th period five year plan
This will result in larger number of new orders getting
announced resulting in a robust order book of the
construction companies
Positive for the entire infrastructure sector.
L&T to be the major beneficiary
VGF scheme extended to irrigation, capital
investment in fertiliser sector, oil and gas
pipelines, telecommunication towers etc
It will push large projects under these sectors and will
help in attracting higher private investment into the
sector
Positive for Ramky Infra, IVRCL, RCF,
Chambal fertilizer, GAIL, Bharti Airtel, IDEA,
GTL Infra etc
Boost infrastructure development in railways,
ports, housing and highways development
Better highways would aid efficient and timely
delivery of cargo for road logistics Players
Positive for IL&FS Transport, IRB Infra,
IVRCL Infra, etc
ECB for capital expenditure on the
maintenance and operations of toll systems
for roads and highways
This move will encourage public private partnerships
in road construction projects
Positive for IL&FS Transport, IRB Infra,L&T,
NCC,etc
Increase in allocation by 13% of Rs. 14,242
crore to AIBP; Further focus to mobilize
funds, in Irrigation and Water Resources;
Allocation of Rs. 14000 crore towards rural
drinking water and sanitation; 20% increase
in allocation to PMGSY to Rs24,000 crore
This will help in building the rural infrastructure and
will be beneficial for the entire construction sector
Positive for companies like Pratibha
Industries, Unity Infra, Ramky, IVRCL,
NCC, SPML Infra, etc
Reduction in the rate of withholding tax on
interest payments on ECBs from 20% to 5%
for three years in sectors like power; airlines;
roads & bridges; ports and shipyards;
affordable housing; fertilisers; and dams
Will lower the interest outgo on ECBs thus effectively
reducing the cost of debts
Positive for the entire sector
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Real Estate sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Allowed to raise money through ECBs for low
cost affordable housing projects
Easier access to funds at a lower rate of interest Positive for Parsvnath, Puravankara, Sobha
Developers and other Small developers
Reduction in withholding tax on interest
payments on ECBs from 20% to 5% for three
years for affordable housing
This should lower the borrowing cost of developers
raising money through ECBs for the construction of
affordable houses
Service tax rate increased from 10% to 12% This would result in an increase in the cost to the end
user as the cost of development will go up
Negative for the entire sector
Extension of 1% interest subvention on
housing loan upto Rs 15 lacs where the cost
of the house does not exceed Rs 25 lacs
Such incentives would spur up the demand for
residential projects and continue to benefit
developers having low-cost affordable housing
projects
Positive for all realty companies catering to
this segment, mainly in tier II and III cities
Increase in the investment-linked deduction
of capital expenditure on low-cost housing to
150% from 100%
This would help stimulate more investments in the
mass housing segment
Increase in income-tax slab Higher disposable income in the hands of consumers
will lead to increased demand for the entire sector
Positive for the entire sector
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Oil & Gas sector Negative
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Increase in cess on Crude petroleum oil
produced in India from Rs. 2500/ metric tonne
to Rs 4500/ metric tonne
Will increase the cost of production, thereby
impacting margins
Negative for Oil Exploring companies like
Cairn India, Reliance, ONGC, Oil India etc
Estimated fuel subsidy for FY2013 set at Rs.
43,580 crore as against 50% of the total
under-recoveries earlier
The subsidy estimate of Rs43,580 crore (for
government) could be less than 50% of the total
under-recoveries in FY2013. Hence it may increase
the burden of the PSU upstream companies and also
affect marginally the OMCs
Negative for the PSU upstream companies
like ONGC, Oil India and Gail
Oil & Gas pipeline infrastructure eligible for
“viability gap funding”
The proposal would act like a catalyst thereby
increasing investments into the pipeline infrastructure
Positive for GAIL, GSPL, IGL
Removal of 5 per cent custom duty on LNG
imports
This will benefit importers of LNG including power,
sponge iron and fertilizer Companies
Marginally Positive for Petronet LNG, Gail
etc
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Pharmaceuticals sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Increase in Service tax from 10% to 12% This would make the healthcare services more
costlier
Negative for the entire sector
200% weighted reduction in in-house R&D
extended for a further period of five years
This will incentivize investment in R&D and
encourage new drug development
Positive for Dr. Reddy’s, Biocon, SPARC,
Piramal Life, Sciences, Ranbaxy
MAT announced for partnership units Negative for companies that have partnership unit, as
it would result in higher tax outflow
Negative for Sunpharma, Cadila Healthcare
Allocation for NRHM proposed to be
increased from by 15% to Rs. 20,822cr
This will strengthen the rural health infrastructure Positive for all pharmaceutical companies
Exemption from income tax of upto Rs. 5,000
spent on preventive health check-up
Exemption for check-up expense will help healthcare
services
Positive for all pharmaceutical companies
Proposal to continue to allow repatriation of
dividends from foreign subsidiaries of Indian
companies at a lower tax rate of 15% up to
March 2013
Most of the frontline players have their profit making
foreign subsidiaries, which distribute profits to their
holding companies in India. These companies will be
benefited from this provision
Positive for all pharmaceutical companies,
mainly Indian companies, as they generate
the highest revenue from export markets
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Utilities sector Positive
SOURCE: Capitaline, BMA Research
Announcement Impact Comments
Waiver of basic custom duty on coal This will benefit the companies with imported coal
based projects
Positive for NTPC, Adani Power, Tata
Power, JSW Energy, GMR Infra, GVK
Power and NPCIL
Allowing External Commercial Borrowings
(ECB) to part finance Rupee debt of existing
power projects and cut in withholding tax on
ECBs
The private and public power producers can avail
benefit of comparatively cheaper ECB loans to
reduce overall financing costs
Positive for the sector
Sunset clause for claiming 100% deduction of
profits for 10 years extended by another one
year
The extension of 80IA sunset clause offers
opportunity for power developers to commission
power plants in the next year and avail the benefit.
The benefit of 20% additional depreciation to benefit
power producers with competitive based power
projects
Positive for the sector
CIL advised to sign fuel supply agreements,
with power plants that have entered into
long-term PPAs with DISCOMs and would get
commissioned on or before March 31, 2015
It brings comfort of fuel availability for independent
power producers
Positive for companies like CESC, Lanco
Infra, Reliance Power, Adani Power,
Indiabulls Power ,NTPC
Exemption of Custom duty on plant and
equipment required to set up solar thermal
projects and a concessional CVD of 1% to
steam coal for a period of two years till March
2014; full customs duty exemption for natural
gas and LNG
Positive impact on the sector struggling due to high
prices of imported fuel
Positive for the entire sector
Tax free bonds of Rs. 10000 crore to be
allowed for financing Power sector in 2012-13
It would help to improve funding for the sector Positive for the whole power sector
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Nidhi Kedia || Research Analyst ||[email protected]
March 19, 2012